Frequently Asked Questions
What is a 3PL?
3PL stands for third-party logistics. The term refers to companies that provide businesses with outsourcing services that include inventory management, pick-and-pack, warehousing, and distribution. Essentially, these companies help manage the supply chain so businesses can focus on other areas like sales, product development and customer service.
What are the advantages of 3PLs?
There are many advantages to using a 3PL, the most noticeable benefits are financial and expertise. 3PL’s allow businesses to eliminate the need to make expensive investments in their own warehouse, equipment, technology, and employees. These benefits along with the flexibility to scale up and down as a business may require, and focus on other areas of the business result in significant financial savings and increased sales.
Better customer experience is another major advantage. With the shift to shopping online continuing, delivery time and cost have become important customer service factors. With customers expecting two-day shipping as standard, businesses must be able to shorten delivery time and reduce shipping cost to stay competitive. 3PL’s have robust freight management tools and good rates with carriers to help their clients save money and provide great service to their customers.
What types of businesses should use 3PLs?
Almost any type of business can benefit from a good 3PL partnership. Businesses ranging from eCommerce startups to Fortune 500 companies partner with 3PL’s to handle and deliver their products. The main reason is that a 3PL partnership provides businesses the flexibility to scale up and down and therefore effectively manage their operational requirements and cost.
For instance, when a small eCommerce shop first launches, self-fulfilling orders is quite possible to handle. However, as the number of daily orders grows, the employees quickly find themselves spending too much time packing and shipping products. Even if they hire more workers, they will eventually run into another problem – warehouse space. These are problems that are holding the business back and probably costing them sales.
How does 3PL pricing work?
Every 3PL provider is unique and has a different way to calculate their pricing. In general, a 3PL breaks down their fees according to the services they offer. Here are some examples of how a 3PL may charge you:
- Initial setup fees: Most 3PL’s charge this one-time fee when signing up a client. This is because every business is different in terms of suppliers, inventory, and customers. 3PL’s need time to get all that information set up and prepare to accept their clients’ products.
- Receiving fees: In most cases, these fees cover all services related to managing inventory such as unloading, sorting, counting, etc. Receiving fees also vary depending on your 3PL provider, but you will be most likely be charged one of two ways: on a per-unit basis or by the hour.
- Storage fees: Your 3PL will most likely charge you storage fees based on the space your products take up. To be more specific, some warehouses charge by the pallet while others charge by the cubic foot.
- Pick and pack fees: Pick-and-pack refers to the process of locating items (pick) then packaging them (pack). 3PL providers charge for this process and any extra material involved such as box, tape, paper, dunnage, etc. Depending on your 3PL provider, you may be charged with a flat fee or with a base fee plus additional variable cost.
What are warehouse fulfillment services?
Warehouse fulfillment services refer to services provided by a 3PL that effectively handles the inventory management and distribution work for your business. Fulfillment services typically include receiving your products, storing goods, pick-and-pack, bundling, and delivery to your customers. Letting 3PL’s do the heavy operations work for you not only reduces operating costs, but also saves you some time and effort so that you can invest in other parts of your business.
When should a business start outsourcing fulfillment?
When first launched, most businesses fulfill their own orders. As they scale up, some turn to 3PL providers for logistics solutions while some find it difficult to determine when is the right time to make the switch. Fortunately, there are many 3PL providers for businesses to choose from, some of which specialize in helping small eCommerce shops scale up while others support large scale operations and a few excel at both.
A good rule of thumb for choosing the right moment to outsource fulfillment services is to ask yourself these 3 questions:
- Does your business spend too much time on packing and shipping orders?
- Does your business experience seasonal and/or cyclical sales?
- Would you rather invest in people, facility, equipment and own the responsibility of operations, or have somebody else do it for you?
What is supply chain management and why is it important?
The term supply chain management (SCM) refers to effective and efficient management of the supply chain to maximize customer value while achieving long-term competitive advantage. To put it in another way, SCM emphasizes and revolves around the process of turning raw materials into goods or services sold to customers, covering many areas including research and development, production, packaging, and shipping. The goal of SCM is to integrate all these areas into one seamless system.